Microsoft-Yahoo Deal Is Dead. Now What?

The weekend's big news was Microsoft's withdrawal of its offer to buy Yahoo. The blogosphere is filled with speculation about who won, who lost and what happens next. Here's a sampling:

On the data center front, the deal's collapse means we won't be seeing a massive integration of the two companies' facilities, and that Microsoft won't wind up running major services on rival open source technologies. The deal's failure probably makes life less complicated for Rackable (RACK) and DuPont Fabros (DFT), who rely on Microsoft and Amazon for the bulk of their revenue. See our story Microsoft, Yahoo and Their Data Centers for the history on this.

Yahoo's stock is expected to drop Monday, perhaps nearing the $20 a share valuation prior to Microsoft's offer. This is bad news for shareholders, including any arbitrageurs betting that the deal would go through, but also many Yahoo employees as well. Some analysts suggested a stock buyback to support Yahoo shares.

Jerry Yang has posted a message to Yahoo employees on the Yodel Anecdotal blog. Yang said critics have "underestimated the determination of Yahoo!'s incredible people, spirit and culture."

What about the prospects of a Yahoo-Google advertising deal? There were reports last night that Yahoo "is frantically trying to negotiate a deal with Google to outsource search advertising and get it announced before the markets open tomorrow."

Danny Sullivan of Search Engine Land sees the deal's collapse as a serious setback for Microsoft, and offers a lengthy analysis of Microsoft's position in search.

Mary Jo Foley: "I see this as the smartest thing Microsoft could do. In fact, I'd go so far as to say Microsoft's decision to walk restores my faith in the future of the company."